Many analysts are chanting the mantra “The worst is over!” But if we take a deeper look into both the United States and World economies can we be so sure?
We still have a nation facing record levels of personal debt, over fifteen years of stagnant income growth, and more than 50% of the population still upside down in their homes and basically stuck in them for the foreseeable future. Add to that the possibility of the financial crisis in Europe and Greece worsening and the instability of the Euro and you have the makings for a double dip housing crash.
"We've gone through half of a lost decade since the crisis started in 2007," said Robert Shiller, co-founder of the Case-Shiller U.S. housing price index and an economics professor at Yale University.
A Reuters poll published on Friday showed most economists think the U.S. housing market has now bottomed and prices should rise nearly 2 percent in 2013 after a flat 2012. For Steve Blitz, chief economist at ITG Investment Research in New York, the housing market improvement has gotten as good as it can without more improvement in the labor market.
"I don't see it worsening unless the economy goes back into a recession, but I think it's more a case of stagnating," Blitz said.
Back in 1996, the median home price was around $80,000. When house prices soared to $200,000 in 2006, the market peak, it was due to jumbo mortgages, not jumbo pay raises. Banks lured consumers in with low interest rates that later turned much more expensive and blew up monthly payments, eventually helping to cause the housing crash.
On the one hand, the housing implosion has created a bonanza for those buyers who can take advantage of it: U.S. real estate is now 36 percent cheaper than in 2006. In nearly every city, it now costs less to own than to rent. But many would-be homeowners cannot buy. Lenders have virtually locked them out of the market by denying them mortgages, according to statistics from the Federal Housing Administration and a recent Morgan Stanley research report.
"Most of the population can't meet current mortgage underwriting standards," says trade publication Inside Mortgage Finance founder Guy Cecala. "They're getting eliminated before they even get to the door."
Some believe this credit freeze is only going to worsen. Washington is considering new mortgage regulations that would shift more responsibility for bad loans away from taxpayers and investors and toward banks.
Still, there's no doubt that in most places the housing market appears to have bottomed out and is now gathering strength. The places that were hit hardest, like Florida, Arizona, Nevada and California are on the rise.
In late June, Lennar, the third-largest homebuilder in the United States, reported a rise in new orders for the fifth straight quarter. Executives had foreseen that, after the housing crash, family members would start to live together as a way to save. Lennar started designing a new home that included a 600-square-foot apartment with its own entrance called the "Multi Gen Home." It has been a hit. Nonetheless, Lennar's chief executive officer, Stuart A. Miller, told analysts in June that he was nervous about uttering the word recovery.
"I don't think that there's reason for exuberance right now -- except for the fact that the beatings have stopped."